Huhtamäki Oyj

Good morning all and welcome to Huhtumäki's investor call for the second quarter of 2024.

My name is Kristian Taimela, VP of IER. We have this morning released our results, and as again, we will start with presentations by our president and CEO, Shao-Elme, followed by our CFO, Thomas Gerst. And after that, we go to a Q&A session. Before that, I'd like to remind everyone of the upcoming site visit to our site near Chicago on September 4. If you are interested, please feel free to reach out to the IR team. And with that, let's get started and handing over to Charles.

Thank you, Christian. Good morning to all of you, and thank you to all for joining us for this release of our second quarter results and first semester. I will start with a quick summary on our results and the business context for the second quarter. I would say that in one word, I would summarize that Q2 was extremely consistent with Q1. However, slightly better, if I may say it like this, and I will give you a few insights before going into details. The first point is that we are continuing to see some signs of increasing demand. with however some differences between geographies and categories. We see particularly improvement in on-the-shelf categories, so the food and everyday necessities, and there we are seeing, like we said at the end of the first quarter, but even more positive, we see volume growth versus the same period of 2023, as mentioned already in the first quarter, but as said, even slightly better in the second quarter. At the same time, we see that the on-the-go categories are softer. We believe that this is a temporary arbitration from consumers as a result of the high inflation that we have seen in the hospitality sector, in the restaurants, in the quick service restaurants, in the coffee shops, and that drives inflation. the demand slightly down during the first semester of the year. The market environment in a nutshell is still impacted by the high inflation, which has been particularly high for food products and, as I said, even more for food service products. There are also impacts which we hope will be only temporary in the year 2024. That is coming from the volume decline due to the war between Israel and Hamas. and also the Red Sea crisis has impact on logistics and therefore on the international trade. From a financial performance point of view, that drives our sales slightly down, minus 1%. We will see exactly the components of it, volume being very close to last year's same period for the second quarter and for the first semester. At the same time, we continue, we actually increase the acceleration of our profit growth. The profit is growing 14% at adjusted EBIT level, and the margin, again, at adjusted EBIT margin level is reaching now Q2 10.2%. We will see first semester is 10%. A major contribution to this profitability increase is actually the savings that we are delivering, continuing to deliver in line with our boost savings program that we introduced in the end of 2023. And I'd like to give first a reminder about this program that we announced late 2023. It's a program that is targeting to save 100 million euros between 2024 and 2026, so in three years. on tackling costs on four areas, sourcing, material efficiency, so in other words, waste reduction in our manufacturing entities, labor productivity, and also footprint optimization, particularly the manufacturing footprint optimization. So after this reminder about the overall program, where are we? And that's the right-hand side on the slide that you can see online. Where are we at the end of the second quarter 2024? Well, the initiatives are in execution in all areas. That was the case already in Q1. Achieving... at the end of the first semester, savings which are above the linear trajectory that the $100 million would give over three years. So that's already a very positive sign, and that has contributed materially to the profit expansion that I will explain in a couple of minutes. And it has also compensated for the high inflation that we see, particularly on labor costs. So far, a program-related cost that we are accounting, and Thomas will come back to this in the IAC, that amounts for 15 million euros during the first semester, and that includes a positive impact from the divestment of our real estate in China. China being one of, if you remember, one of the manufacturing footprint optimizations that we announced during Q1. During Q2, we have actually continued all our activities in sourcing, in labor productivity, in waste reduction, but also we have initiated two other projects for manufacturing footprint optimization, consolidation. One announced on the 23rd of April, which has to do with the consolidation of our food service manufacturing in Klang, near Kuala Lumpur in Malaysia. And the project completion is done by the end of this second quarter. I have to say that the project in China and the project in Malaysia have been conducted perfectly according to plan and will deliver the savings plan. The second, on May 31st, we announced the consolidation of our three factories in UAE into two entities and that will happen during the second semester. So last time to conclude on this efficiency program that we are expecting to continue accumulating the savings during the three years, with most likely, as we see it, savings which are above the trajectory during the first semester, but should remain like this during the year 2024. Going now into some specifics on the second quarter and first semester first starting with the sales of the second quarter, the sales which decreased 1%, and that was very much in line with what I said before, linked to volume and pricing being the two components, but being very close to the previous year's level, while we still had, when we're talking about comparable net sales growth, we still had a minus 1%. From currency impact, Thomas will present further details on this. On the first semester, sales decreased 3%, so you get that the second quarter is actually a better trend in relative terms versus 2023 than Q1. In the first semester, altogether, comparable net sales growth minus 2% after deducting the currency impact negative minus 1%. And as said, the volumes, I'll come back again in more details by segment, but the volumes are close to last year, with differences between categories and geographies, where we see more impact is on the pricing, where the competitive pressure is there. We are holding well, but slightly negative on pricing. Looking at now the same sales, comparable net sales growth, but broken down by segment, we see clearly what I was suggesting in the introduction, meaning the food on the shelf is growing in terms of sales, but also even more in terms of volume. The food, sorry, the packaging for food on the go So basically food service is seeing a temporary decline, which is linked to a demand where all the market intelligence we have is showing that consumers are temporarily reducing their out-of-home consumption linked to the high inflation that this sector has seen altogether. So that means food service, Europe, Asia, Oceania, says minus 6% in Q2. Part of it is pricing. Part of it is also the one-time effect I was mentioning regarding the Gaza war that is driving boycott of the U.S. brands or Western brands in general. And that's an impact which is sizable. Also, the logistic from the Red Sea crisis. North America is minus 2%. North America is purely pricing. The volume is basically flat with some good news also in some categories in North America. So the performance is actually quite solid. The good news is on the packaging for food and everyday necessities on the shelf. There we see the flexible packaging. where we are growing the size 2%, and actually the volume is more than the 2%. So we have also pricing pressure in the flexible segment. And then fiber packaging is also a nice growth. Let's remember that in fiber packaging, which is the core is egg packaging, but we have also food service products into the fiber packaging, for instance the cup carriers, which are suffering the lower demand of food service. So the... let's say, underlying growth of the core business in fiber is really positive. I'll come back to that a bit later. This translates into the PML for those following with the presentation offline, slide 8, looking now at the PML. In the second quarter, with those sales which are flat to slightly negative minus 1%, we are delivering a profit growth of 14%, reaching in Q2 an adjusted EBIT margin of 10.2%. And that means year-to-date a 10.0% on the first six months of the year. And when you compare to the profitability a year ago, 8.8%, then this is a... a substantial material improvement, which is linked to all our cost reduction programs that we have initiated already in 2023 and accelerated in 2024. Good to mention also, and that's valid for the quarter two, like for the year to date, that the Adjusted EPS is following exactly the same improvement trend as the operational earning, which is good. We have slightly reduced our – well, slightly, maybe I should say substantially reduced our capex, but I'm saying slightly because there is a – a timing effect into it, so it's not like we are planning to reduce our capex on the full year by 37%, as you see, for the first semester, but still, capex will be lower. You may ask questions on this. Then, sustainability performance continues to progress in line with our targets. I should even say that We are above our linear trajectory to 2030 with our sustainability performance. I may comment a number that is not on this slide, but we have told you that we have introduced a global sustainability and safety index since 2013. Three years now, this global sustainability index, when we projected from 2020, the baseline, to 2030, our long-term target, starting with an index 100 to an index 200 in terms of target within 10 years, we are at the end of H1 2024 at an index 158. So this is really a solid performance. We are above the linear trajectory. that is linked to basically all the indicators, including safety, but on the specific environmental sustainability, we are As you see in the slide, we are improving in renewable electricity, for instance. Let's remember in 2019 we were at 0%. Last year we were at 36%. We are at 55%. It doesn't mean that in one year we will be at 75%, so it's not a linear progression. There are projects which justify this acceleration. Other indicator we are very proud of is the recycling of industrial waste. It was 70% a couple of years ago. We are at 81%. Or on the bottom of the page, the waste to landfill was, if I remember well, 17%. In 2020, we are at 6%. Now, last year was 9%. So we are progressing consistently period after period, year after year. One indicator is in red. That's the one you see on the top left corner of the slide. That's the renewable or recycled material. You have to see it as indeed a reduction, which is not according to our target, but that's purely linked to the mix because of what I explained before. We are growing in flexible packaging in 2024. We are not growing in the food service, which is mainly or even solely renewable. paper-based products and therefore that has a mixed impact. It does not change our long-term ambition. Looking now at some details of the business and performance per business segment, starting with food service Europe, Asia, Oceania, where we've seen market softness in Q2 exactly according to Q1. So no change, but no change for the better, actually. So the demand for food service packaging has remained soft. affected by the high inflation on food products, but even more the inflation in quick service restaurants has been even higher. I would like to give maybe a small indication of light out of the tunnel is that we see our customers, the big brands, the food service players actually starting promotional activities in the beginning of Q3, which are there for them to comment upon it, but our interpretation is that they want to re-attract consumers and to mitigate, let's say, the impact from this inflation. Despite this challenge in the top line in the volume and sales overall in food service, we are maintaining our margin at 9.2%, adjusted EBIT margin, which is a good result in the context and that's also the result of our savings activities across the company. Moving on to North America, North America says, as I said before, a comparable net sales growth, minus 2%, very much pricing related. The demand remains basically unchanged versus previous years, with some... with some differences by categories. Basically what we see more and more in the U.S. to push the consumption is a lot of promotional activities by, for instance, retailers, and that is driving pricing pressure, of course, in the value chain for us, but also potentially better volume projection going forward. The remarkable achievement in North America, which is very much in line with Q1, is the continued improvement of our profitability, but it's not an incremental improvement. It's a substantial improvement from 12% to 14% adjusted EBIT margin, so two points improvement linked to a favorable cost environment, but also linked to our cost savings program. And then I should have mentioned also on the sales side that we are starting to see traction from our investments. For instance, in the egg packaging in the new almond factory in Indiana near Chicago, even though in the first semester it is still... how should I say, marginal value, therefore projecting for the next semester or even for 2025, then that's clearly a vehicle for growth for us. Second, you may remember that we are currently investing and installing a second factory or the expansion, the duplication of our factory in Paris, in Texas, in the U.S., in food service, and that factory will be ready in January 2025 with commercial production. That also gives a positive perspective to the sales growth, which will also, of course, support profit growth in North America. Flexible packaging, we know that this was our segment with the lowest performance until last year. We are seeing good signs of our strategy, of our innovation deployment. Our volume is positive, so volume growth is positive, sorry, in 2024, in the first semester, in the second quarter also. Actually, in the second quarter, in relative terms, a bit higher than the first, so that's positive. And there is also pricing pressure in flexible packaging, but all in all, we see that our strategy is starting to unfold positively, and that translates also in a slight margin increase from 5% to 6%. Early days, we are far from where we want to be, but that's good signs of better performance in that segment. Finally, on the fiber packaging that I started to suggest at the beginning, there we continue to see solid net size growth and profitability. I would like to mention that the 3% comparable growth, which is good, could be actually much more positive for the second quarter. And the reason is we are still suffering a few impacts in terms which are temporary in this segment. Number one, you may remember we had a fire on the production line in Australia in January. That line is still not operational, so that's a temporary impact. But structurally, this will be further growth going forward. Second, in Q1 there was avian flu in South Africa, apparently resolved by now, but in Q2 started avian flu in Australia, which is hampering also the growth of the second quarter, but still we have a solid growth and a solid profitability improvement, which is linked to not only this top-line growth, but also linked to the operational improvements that we have made in a number of factories. particularly in the Netherlands. With this, I hand over to Thomas for the financial review. Thank you, Charles.